Preferential Trade Agreements and Rules of the Multilateral Trading System

Kamal Saggi (), Woan Foong Wong and Halis Yildiz

No 67, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: In a three-country model of endogenous trade agreements, we study the effects of major WTO rules governing the conduct of free trade agreements (FTAs). We show that FTA members retain positive internal tariffs even if they seek to maximize their joint welfare. Requiring FTAs to eliminate internal tariffs — as stipulated by current WTO rules — makes the non-member better o§ although it simultaneously reduces the likelihood of achieving global free trade by encouraging free-riding on its part. While the WTO’s non-discrimination constraint is not necessarily conducive to reaching global free trade, it raises welfare in a tariff-ridden world.

Keywords: Free Trade Agreements; Tariffs; Customs Unions; World Trade Organization; Coalition proof Nash equilibrium; Welfare (search for similar items in EconPapers)
Pages: 46 pages
Date: 2017-12
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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Working Paper: Preferential Trade Agreements and Rules of the Multilateral Trading System (2017)
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